uk.finance

Something a little less ordinary for the finance geeks:

I was sitting in a talk about detection and prevention of asteroid
strikes this morning when the speaker mentioned that it would cost
around 300 million Dollars to launch a kinetic energy deflection mission
(basically the spacecraft or something carried by it smashes into the
asteroid at a high velocity in order to change its trajectory).

They seemed to think 300 million wasn't much, but it got me to
wondering about financing such a mussion.

Obviously in any single year, the odds on the Earth being hit by an
asteroid big enough to cause great damage are very small. I started
thinking about credit default swaps where the holder of the swap is paid
an annual income and contracts to pay out a certain sum if a named
company goes bust, with the company usually having a small probability
of actually going bust.

What I was thinking is would it be possible to set up what was
functionally an asteroid strike swap? For example a contract which would
pay out half a billion Dollars when such and such a committee stated
that the probability of a particular asteroid greater than a certain
size hitting the Earth had reached 1 in 10 (the trigger point for
sending a deflection mission would most likely be less than certainty).

Is there a formula for pricing such contracts ( compute a ballpark
annual premium)? Say the probability of this being triggered in any one
year were 1 in a million, how would a rough price be worked out?

FoFP